Bitcoin Mining Officially Becomes Unprofitable

According to this story from CNBC, the bitcoin price USD and the amount of hashrate current in play means that for the most part, mining bitcoins is no longer profitable, if the price remains at this level.

This story comes as Bitcoin goes through another agonizing series of price drops. The Bitcoin price in January dropped from the peak of 20k down under 8k, and most people called bottom when the bitcoin price bounced off of the $7500 level and recovered back up to 11-12k. However, in recent weeks, the bad news for crypto currencies as a whole has continued to pile up, with regulatory issues, potential moves from State AGs in regards to certain types of ICOs, and general bad sentiment has lead to the price of bitcoin dropping.

On the other hand, we have the endless increases in Bitcoin hashrate, the amount of processing available to do the same amount of work. As that number goes up, the cryptos become harder and the amount of processing to solve them becomes higher – so the return on your THs drops significantly.

How bad is it? On the 4rd of December, my 1THs generated 0.00018504 BTC (before fees, or 0.00015495 after fees). On March 18th, my 2THs generated 0.00015492 (before fees, or 0.0000649 after fees). The fees for March 18th were 0.00009002, or 15 times what I earned net! In real money terms, it means I made 27 cents per THs, down from #1.30 just over 3 months ago.

I am pretty much within a very few dollars in bitcoin price to not making anything at all.

The article says this:

“Bitcoin currently trades essentially at the break-even cost of mining a bitcoin, currently at $8,038 based on a mining model developed by our data science team,” Fundstrat’s Thomas Lee said in a report Thursday.

Based on my experience, that is about right.

So why doesn’t it get any better? Well, you have a few things in play here. You have people like me who are on contracts and cannot easily stop them. My hashrate will be in the system until December, no matter what – unless Hashflare shuts down or preemptively shuts it down to stop costing money. More importantly, Chinese bitcoin miners, who are a big part of the total hashrate, continue to add processing power because they are getting electricity at such cheap rates, that they can afford to keep mining down to very low price points, even with the current difficulty levels. They get a secondary boost because they use Bitcoin to move money out of the Chinese system, which often has a 10 – 30% premium on it. It’s harder to get money out of China these days, and buying hashrate is one of those ways to do it – buy hashing, and the resulting coins are “outside” the system and can be sold outside of China.

Now, what may put all of this on it’s head is moves in China to shut down mining operations, or to raise their electricity costs. The government is reorganizing to make environmental protection one of their three dragon policies, and burning coal to make cheap power for crypto mining is likely to be a target, easy pickings. The government may also move limit the ability of Chinese citizens to mine without the coins staying inside the Chinese system, which would remove much of the profit from the current systems. If that happens, the hashrate could literally drop overnight.

If you think that is a good thing, you need to think again. Any shutdown or even partial block by China would put many of these traders into a position to need to liquidate both their equipment holdings and their bitcoin holdings. Cheap equipment may be snapped up by others and put back to work mining, and large scale panic selling of bitcoins could tank the price permanently. When you consider that Chinese are mining probably 70% or more of the coins in the market, any move to get rid of that many coins in a short period would kill any price for the coins.

At this point, I have recouped only 1 of my two mining contracts. At 50 cents a day, I have no chance to actually break even on the other one. My only hope is that the price of bitcoin goes back up. But much below $8000, it will actually cost me money to mine. At that point, I may have to ask Hashflare to stop them running for now.